The BSE Sensex closed down nearly one per cent today, reversing the previous session’s gains. Banks declined on worries of a rise in cost of funds and heavy government borrowing in the first half of the next financial year, starting in April.
Traders also attributed the decline in the indexes to portfolio positioning by domestic institutional investors ahead of the financial year-end this week and derivatives expiry on tomorrow, the last settlement for financial year 2011-12.
Domestic institutional investors were net sellers of Rs 290 crore of equities on yesterday, according to provisional data from the National Stock Exchange (NSE).
“There is no real investor in the market because, on the policy making point of view, we may have hit a road-block,” said Jagannadham Thunuguntla head of research at SMC Investments and Advisors Ltd.
The main 30-share Bombay Stock Exchange Sensex ended down 0.8 per cent at 17,121.62 and the NSE’s 50 share Nifty 0.92 per cent down at 5,194.75.
State-run State Bank of India (SBI), the top lender in the country, raised interest rates on short-term deposits by up to 100 basis points yesterday. Investors expect other banks to follow the leader, which is likely to pressure their margins.
In addition, banks have been facing an acute cash crunch in the absence of adequate government spending, following the outflow of advance taxes estimated at around Rs 70,000 crore earlier this month.
The liquidity tightness is evident from banks’ daily repo borrowing from the central bank, which hit a record high of Rs 1.96 lakh crore on Monday.
SBI fell 2.3 per cent, while top private lender ICICI Bank and smaller rival HDFC Bank declined 2.1 and 1.4 per cent. The BSE banking index, which has risen 25 per cent so far in 2012, ended 1.9 per cent lower. The government plans to raise Rs 3.7 lakh crore through bond sales during April-September, 65 per cent of its gross borrowing target of Rs 5.7 lakh crore for 2012-13.